'Global minimum tax rate not as fair as it seems.' The Complexity of International Taxes | Interview with Mr. Raymond Adema

Interview: Marco in 't Veldt

Mr. Raymond Adema is an Associate Professor (International) Tax Law and one of the academic leads at the Human Mobility & Migration Lab of the Rudolf Agricola School. The commonality between them: both focus on international mobility, as in our current era of globalization, people, data, and money are moving around the world at an increasingly rapid pace.

Adema: Nowadays, people quickly associate taxes with tax evasion. However, I am interested in the bigger picture. Taxes are necessary for the proper functioning of a country. How do you collect taxes as fairly as possible? Many countries and people are working hard towards this goal with the best intentions, including myself, but we are dealing with a world that is rapidly becoming much more complex, and where the term 'fair' is also becoming increasingly more intricate.

An example: the province of Zeeland had dredging work carried out in the Zwin, between the Netherlands and Belgium. A Belgian company was hired to dredge on the Dutch side. The province of Zeeland thought that they had to pay 21 percent VAT to the Belgian tax authorities, but that turned out to be incorrect. The Dutch tax authorities insisted that the VAT should be paid in the Netherlands and issued an assessment of 650,188 euros, along with a fine and interest of 130,000 euros. The responsible alderman found this 'strange': 'because the tax authorities are working with us. They should have informed us about this at the outset. Now we are paying double, and that doesn’t seem quite right.'

Adema: Interesting! I am convinced that in this case, everyone acted with the best intentions, and yet it still went wrong. Due to the international aspect. International mobility has become an increasingly relevant topic in a globalized world. Capital, employers, and employees are moving faster and faster across the globe. My interest in international tax law was sparked by the complex tax issues that international workers face and how tax treaties influence their tax position. You encounter clashes between different tax systems. Many things are negotiated and stipulated in international treaties, but still, people sometimes, for example, end up paying double or no tax at all.

Can the EU play a role in preventing these problems?

That remains challenging. Due to the EU, workers are exceptionally mobile, consider for example people from Eastern Europe coming to the Netherlands for work. When people move around, where do you collect taxes? But also, consider online work. This means it no longer matters where you work. Or does it? For taxes, it does. We are all part of the EU, but countries still prefer not to relinquish tax authority. It involves conflicting interests; each country wants to maximize tax revenues because that allows them to do things for their people.

Can't you collect taxes at the European level? Then you would be rid of that tricky international aspect as long as it's within Europe.

No, there were ideas for that in the sixties, but they were never implemented, and I don't see that happening anytime soon. However, since 2010, there has been collaboration to share information and combat tax avoidance. However, the underlying tax laws still vary significantly from country to country. Something may be considered a 'permanent establishment' in one country but not in another, or under different conditions. These things have a history; you can't just change them overnight.

For example, you can work online in the Netherlands while residing in Belgium. But where do you pay taxes, where do you pay social security contributions? It may be the case that the employer pays taxes in the Netherlands, but the social security contributions need to be paid in Belgium.

Outside the EU, it becomes even more complicated. Digital nomads travel the world, working in, for example, Thailand for a while and then in Mexico. But where do they pay taxes? Do they pay taxes at all?

And consider the extremely wealthy. They, for example, have multiple homes where they reside for part of the year. Some time in London, then New York, and in the winter, perhaps the Seychelles? Where do you live then? These are issues that tax authorities, for instance, grapple with enormously. As a scientist, you can contribute by thinking about and attempting to find solutions to such challenges.

As a scientist, what is your task?

Mapping out issues and advising on how to solve issues by making things more understandable, logical, and simpler is crucial. The goal is to have a fair tax system without burdening employers and employees with a huge administrative load. Transparency is essential, and you should be able to be accountable to the taxpayer.

As a scientist, I have an outside perspective and can make recommendations on issues that everyone – the ministry, stakeholders, tax authorities, industries – grapples with. In doing this, you often collaborate with colleagues from different parts of the country.

Do you work on an interdisciplinary level?

Absolutely! Of course, we do so within the HuMM lab, but also beyond that. While evaluating elements of tax legislation, I have collaborated several times with economists in the past period. This also involves looking at behavioural aspects, as demonstrated, for example, by the benefits scandal. If more attention had been paid to these aspects in the design of that legislation, the legislator might have made different choices.

Can you speak of progress in tax science?

That depends on your definition of progress. In any case, taxation is becoming increasingly complex, not only due to the contemporary mobility of taxpayers but also because of the digitization of the economy. For example, I am currently supervising a student who is working on his master's thesis on Decentralised Autonomous Organizations, a kind of digital entity governed by a set of rules encoded on a blockchain. No one in such an organization is the boss or owner. Decisions are made through voting by participants. It's an interesting concept, but as a tax authority, it can be quite challenging because determining who pays taxes and on what can be perplexing. Nevertheless, that student is conducting very engaging and inspiring research!

So, there is progress in science?

Legislation grows in response to real-world situations. Laws are established with the best intentions. When issues arise, efforts are made to fix them. However, it's not possible to create a simple, clear system from scratch. This brings us to the essence of my profession: examining the core. What is the purpose of a tax scheme? How are the schemes structured? And what is the interaction with other tax laws or legal areas in the Netherlands or abroad?

And how about tax avoidance?

The Organisation for Economic Co-operation and Development (OECD) and the EU are currently working on a revision of the international tax system and the introduction of a minimum corporate tax rate of 15% for multinational companies. This is aimed at addressing tax avoidance. While it may seem fair, is it truly so?

At first, you might think this is harmless. However, there's a catch. The minimum rate applies even when there is no tax avoidance involved. This means that the country where the multinational is based can start taxing if the company pays less than 15% tax in a particular non-participating country. This is taking it too far for me. For poor(er) non-participating countries, low taxes are a way to attract investors, strengthen the economy, and create jobs. It is a means of (further) development. A country might say, for instance, 'We are temporarily collecting lower taxes to attract businesses and employment.' But now, on an international level – mainly driven by developed countries – 'If they tax less than 15% there, we will top it up.' This means that the extra money doesn't go to the non-participating poor country but to the rich one. I have reservations about these situations because it involves intervening in another sovereign state that has consciously chosen not to participate in the OECD and EU initiative.